Are You Tracking These 4 KPI’s for Your Business?
July 15, 2023
Cash Flow – As Dave Ramsey famously states, Cash is King! Cash is the lifeblood of every business, no matter the size. Cash keeps the lights on and employees paid. There are several different cash flow KPI’s a business can track but the two most useful are Net Cash Flow and Cash on Hand. Net cash flow measures the difference between all incoming and outgoing cash in a set time frame. Using Fathom software, we can quickly chart the ins and outs of cash in a business and spot trouble areas quickly.
Gross Profit = Revenue – Cost of Sales
Gross profit allows companies to see the profit they are generating after deducting their cost of sales from their revenue.
Cost of sales are expenses directly related to sales activities and do not include fixed costs such as rent and utilities. Cost of sales will include manufacturing materials, direct labor, and transportation.
Gross profit is a valuable metric because it helps shape a company’s future profitability. With solid gross profit margins, a company can strategically grow their most profitable goods or services.
Inventory Turnover = Cost of Sales / Inventory on Hand
Businesses must be aware of the amount of inventory they have on hand and make sure they balance in-stock serviceability with cash tied up in inventory on the shelves. Inventory is a necessity for any company but company leaders must always be forward looking and aware of upcoming demand shifts. If a company has invested too heavily in inventory, it risks the inventory going stale as customer demand drops or moves to newer products. On the flip side, there are many valid reasons to have a heavier supply of inventory including seasonality or supplier instability.
Payroll as a % of Revenue = Payroll / (Revenue *100)
For many small businesses, payroll is one of the highest costs within their business. For steady businesses, this number will be relatively constant. For growing businesses, this calculation will help companies make sure they are staffed properly to meet current and future demand.
By monitoring these four key metrics, any business can have a better understanding about the health of their company. Fathom software helps streamline reporting and helps make complex financial situations understandable.